add an animation for the sword, such as Draw (although most animations will also work, if they end in the pose that Draw ends in)

Once you have an animation you can change the sword to look different:

right click on the 'Use Sword' activity on the timeline, and select 'Customise Sword'. You will need to click the existing swords thumbnail to see the other options.

Once both characters have a drawn sword, you can start the mutual animation to get them to fight:

scrub the timeline along to after they have both drawn the sword;

with one character selected, click the other and select from the 'Interact' menu, 'Sword Fight';

you can then add swordfighting animations with the '+' menu.

If you want one of your characters to stop fighting, you need to get them back to the standing pose - 'Both Retreat' or any of the animations with one character being killed should leave a character standing straight again.

Once you have a character standing straight, to make them sheath their sword, you would need to click on them and select 'Use Prop' again. You could get them to do further animations with the sword first. Note that the held prop sequence now says (base) beside it.

This indications that there might be problems with the animations if you combine that with other animations that move the character around, such as walking, sitting or posture animations. Get them to sheath their sword if you have any problems like this.

Swordfighting video tutorial

A short video covering how to build an interactive swordfighting animation using the Swordfighting pack